University FCU Catches Scams Early With New System

Reducing deposit fraud cases is an important goal at any credit union. At University Federal Credit Union, one incident in particular triggered the need for a new solution that would allow it to take a preventative approach against this common form of fraud.

The $1.6 billion, Austin, Texas-based credit union had placed a routine hold on a large check deposit from an account holder, and when the hold was lifted, the account holder initiated a wire for the same amount, explained Sandy Gaskamp, records management manager for University FCU.

By the time the credit union learned the check would in fact be returned, the account holder’s wire had gone through, costing the credit union the amount of the check, Gaskamp said.

Catalyst Corporate Federal Credit Union in Plano, Texas, provides payment services for University FCU. Through that relationship, the credit union implemented the DEPOSIT CHEK service from fraud prevention and risk management services vendor Early Warning, a partner of Catalyst’s since 2009, Gaskamp said.

With DEPOSIT CHEK, University FCU began receiving two daily reports detailing the return likelihood of checks deposited the day before, which gave the credit union a window of opportunity to withhold the funds tied to high-risk deposits before it was too late.

Gaskamp said each check deposited at University FCU is sent to Catalyst, which runs it through the DEPOSIT CHEK service, where a review of the check’s corresponding account status and account owner authenticity is completed.

“It’s extremely helpful,” Gaskamp said. “Every day we see hard hits on our reports, and now we can put a hold on those accounts so we won’t experience those losses. In one instance, we would have lost $2,700, but since we had DEPOSIT CHEK, we were able to catch it.”

Because of Regulation CC, which requires financial institutions to make certain deposit amounts available within specific time periods, the credit union still takes some small hits in check-related fraud cases. Still, its overall gains from the increase in early detection have been significant, Gaskamp pointed out.

University FCU hasn’t tracked exact loss reduction numbers since implementing DEPOSIT CHEK, but the service has helped prevent deposit fraud that can stem from several different scenarios, the credit union said.

For example, if someone opens a new University FCU account and requests an instant issue debit card, he or she may deposit a bad check into the account. In that case, DEPOSIT CHEK will quickly alert the credit union of any warnings about the account associated with the check, giving it time to cancel the person’s debit card before he or she attempts to use it, Gaskamp said.

Returned deposits are the culprit of a significant chunk of check-related losses at financial institutions. Citing the American Bankers Association, Early Warning Financial Services Channel Manager Xan Kasprzak said 30% of all industry check-related losses stem from returned deposits.

The DEPOSIT CHEK service pinpoints warning signs after running an account through a national shared database that covers 95% of all checking and savings accounts in the U.S., Kasprzak said. It then categorizes the warning signs, which may include an account closure, multiple overdrafts, a possible forgery or a possible counterfeit, into hard and soft hits and presents them to the credit union. This gives its managers the chance to place a hold on the deposit or begin conducting an investigation.

“Our credit unions have said that the warnings give them a safety net by allowing them to place an extended hold on the deposit,” Kasprzak said. “They’ve said it gives them a heads up and helps them see that a scenario could turn out to be check kiting. Every credit union has the potential to prevent many losses each month, because they’re finding all the needles in the haystack.”

Kasprzak said the service also translates to a lighter workload for credit unions’ collections and fraud staff members. To demonstrate just how much a credit union can save with DEPOSIT CHEK, she added, one client suffered an additional $18,000 in check-related losses during a four-month period without the service.

As a result of a partnership between Early Warning and fraud prevention technology vendor Advanced Fraud Solutions, all DEPOSIT CHEK users are on a new, Web-based version of the service as of Dec. 31, 2012, which Kasprzak and Gaskamp said has sped up the deposit fraud detection process and created more workplace efficiencies.

Gaskamp said at University FCU, the upgrade means that instead of scanning checks in a back room and receiving reports via an analog hardware reader in the records management department, each teller workstation has its own check scanner and access to DEPOSIT CHEK reports online.

“We’ve brought it to the front line and provided a Web service that’s instantaneous,” Kasprzak said. “It allows tellers to scan checks, key in data and receive a response while they’re sitting at the window. Until we’re able to clear checks in real time, this is one of the best tools we have in our arsenal to prevent losses.”